Tax fraud is costing day nurseries dear

A survey by the National Day Nurseries Association (NDNA) of its 1,000 members in England, Wales and Scotland, published earlier this week, shows that although a relatively small number of parents receive the childcare tax credit element of the Working Families Tax Credit to pay for nursery provision, many nurseries are owed thousands of pounds as a result of parents placing their children only to withdraw them a few weeks after they have received the tax credit. Under the scheme parents can claim a childcare tax credit of up to 100 per week for one child and 150 for two or more.

Almost six in ten nurseries (59 per cent) said the tax credit had made no difference in the uptake of childcare places, while 35 per cent said it made a little difference. Only six per cent of respondents said it had made a significant impact on the uptake of places in their nursery.

As a result of its findings, the NDNA has called for a complete overhaul of the system. Chief executive Rosemary Murphy said, 'The Government needs to change it from a tax credit given to parents to a subsidy to daycare providers, just like its nursery education grant scheme. If it did so, this fraudulent behaviour and mismanagement of money would disappear overnight.' One nursery said three children from the same family were withdrawn after three weeks, leaving an outstanding debt of 900, while another was told the Inland Revenue could not check on reported childcare tax credit fraud unless it could provide the father's National Insurance number - something not normally kept in nursery records. Others have reported delays in payment and no response to information on fraud given to tax credit helpline personnel.

Linda Taylor, joint partner at seven Puffins Childcare Centres in Exeter and Torquay, Devon, said that while probably only about ten per cent of parents using her nurseries were recipients of the tax credit, they caused about 90 per cent of the debt problems. She said, 'Since the scheme was introduced, more people owe us money than ever before. We have never spent as much time chasing up money from parents and currently we have around ten cases going through the small claims court, with others in the pipeline.'

Mrs Taylor said the amounts owed ranged from 300 to around 1,200. 'We have run up 5,000 in bad debts since last September alone. A recent problem has been parents saying they're eligible for the tax credit, so we let them take up a place at the nursery, but we end up in effect subsidising the Inland Revenue because the money takes so long to come through.'

Mrs Murphy said, 'It is remiss of the Government to pay the credit direct to parents, creating a situation where nurseries can be left with the burden of debts. If the Government is serious about subsidising childcare for families it must examine the effectiveness of the tax credit system.'

A Treasury spokeswoman said, 'The Working Families Tax Credit is the most generous help with childcare that parents have ever had. If the Inland Revenue is presented with evidence of fraud it will be prepared to act, but overall the scheme has been an enormous success.'